' Academy al Managemsnl Executive, 1998, Vo!, 12, No, 3

Competitive advantage andinternal organizational

assessment

W. Jack Duncan, Peter M. Gintei, and Linda E. Swayne

Executive OverviewIt is generally agreed in the strategic management literature that internal

organizational assessment is less developed theoretically and practically than otherareas of situation analysis. This paper presents a four stage approach to analyzing afirm's internal strengths and weaknesses and illustrates how the technique can facilitatestrategy formulation through the integration of value chain concepts and theincorporation of the most recent findings on internal resources and capabilities. A caseexample is used to illustrate how the approach can be applied by strategic decisionmakers as a tool for exploring the potential of their companies for sustained competitiveadvantage.

Jay Barney observed that "the development of toolsfor analyzing environmental opportunities andthreats has proceeded much more rapidly than thedevelopment of tools for analyzing a firm's internalstrengths and weaknesses."' Indeed, discussionsof strategic management comfortably refer to stra-tegic issue diagnosis, scenarios, Porter's industryattractiveness analysis, and a multitude of othertechniques designed to examine potentially impor-tant strategic factors outside the organization.^

Discussions of internal organizational assess-ment, by contrast, are more often functional as-sessments of financial, human resource, informa-tion systems, and marketing strengths andweaknesses, rather than attempts to identify thepresent and potential competitive advantages ofthe firm. Effective strategic management requiresan understanding of organizational resources andcompetencies as well as how each contributes tothe formation of organizational strengths and ulti-mately to the development of a competitive advan-tage.

Focusing on the uncontrollable external environ-ment highlights the importance of adapting tochange, fitting organizations to the larger environ-ment, and understanding that the rules of successare written outside individual business firms. Therelatively more sophisticated status of external en-vironmental analysis may reflect little more than

threat bias, or the tendency to iocus on the thingsthat can do harm to organizations. Adaptability, fit,understanding externally imposed rules of suc-cess, and competitive forces, however, are onlypart of the formula for achieving competitive ad-vantage.

Strategic decision makers need a systematictechnique for scanning their internal organization.By paring down long lists of strengths and weak-nesses and determining which ones are competi-tively relevant, they can understand precisely howeach competitively relevant strength and weak-ness has the potential for adding or subtractingvalue. On the basis of this information, they candevelop an array of generic strategies that willmost likely lead to sustained competitive advan-tage. Even though the process can be easilyadapted to the corporate level, our objective is toprovide a business level technique for systemati-cally assessing the relationship between internalstrengths and weaknesses and sustained compet-itive advantage. This technique takes existingideas and assembles and integrates them into afour-stage decision process that can be easily andefficiently used by strategic decision makers. Therecommended approach uses the primary and sup-port activities in value-chain analysis as the do-main for searching out strengths and weaknesses,examines each strength and weakness in terms of

1998 Duncan, Ginter, and Swayne

its ability to create or reduce competitive advan-tage, and suggests specific ways firms mayachieve a more competitive position in their mar-ket places.

A Closer Look at Competitive AdvantageUnderstanding competitive advantage is an on-going challenge for decision makers. Histori-cally, competitive advantage was thought of as amatter of position, where firms occupied a com-petitive space and built and defended marketshare. Competitive advantage depended onwhere the business was located and where itchose to provide services. Stable environmentsallowed this strategy to be successful, particu-larly for large and dominant organizations inmature industries.

The ability to develop a sustained competitiveadvantage today is increasingly rare. A compet-itive advantage laboriously achieved can bequickly lost. Organizations sustain a competitiveadvantage only so long as the services they de-liver and the manner in which they deliver themhave attributes that correspond to the key buyingcriteria of a substantial number of customers.Sustained competitive advantage is the result ofan enduring value differential between the prod-ucts or services of one organization and those ofits competitors in the minds of customers. There-fore, organizations must consider more than thefit between the external environment and theirpresent internal characteristics. They must an-ticipate what the rapidly changing environmentwill be like, and change their structures, cul-tures, and other relevant factors so as to reap thebenefits of changing times. Sustained competi-tive advantage has become more of a matter ofmovement and ability to change than of locationor position.^

Organizations sustain a competitiveadvantage only so iong as the servicesthey deliver and the manner in whichthey deliver them have attributes thatcorrespond to the key buying criteria of asubstantial number of customers.

The question of an enduring value differentialraises the issue of why a firm is able to achieve acompetitive advantage. To answer this, it is neces-sary to examine why and how organizations differin a strategic sense. Identifying strengths andweaknesses requires introspection and self-exam-

ination. It also requires much more systematicanalysis than it has received in the past."

Assessing the Potential for CompetitiveAdvantageExternal environmental analysis is accomplishedby scanning, monitoring, forecasting, and assess-ing. These successively more detailed environ-mental sweeps help ensure that genuinely impor-tant opportunities and threats in the externalenvironment are not overlooked. Internal organiza-tional analysis should take place in much thesame way, through the successively detailedstages of surveying, categorizing, investigating,and evaluating. Although the terms are arbitrary,they are meant to convey the idea of successivelymore detailed sweeps of the internal organization.Each stage in the process achieves a criticallyimportant task that is highlighted in the discus-sion.

Figure 1 provides an overview of these fourstages. The entire process will be illustrated by acase study of Ingram Micro, a leading worldwidewholesale distributor of microcomputer productsas a case study.^ A brief description of IngramMicro is provided in Figure 2.

Stage One: Surveying Potential Strengths andWeaknessesIdentifying an organization's strengths and weak-nesses is difficult because characteristics that ap-pear as one or the other may, on closer exami-nation, possess little or no significance forcompetitive advantage or disadvantage. The list ofstrengths and weaknesses generated by conven-tional techniques is usually little more than aninitial impression of what a firm does well andwhere it needs improvement. The list is usuallylong, not very concrete, and agreed on by only arelatively few people.

However, even a superficial list of possiblestrengths and weaknesses is important to initiatestrategic thinking and to locus thinking on areaswhere the firm can actually add or lose value.^This approach requires a survey of infrastructure,human resources, technology development, pro-curement, inbound and outbound logistics, opera-tions, marketing and sales, and service activities.Accomplishing the initial survey is a matter oflooking at financial statements, staffing stan-dards, information resources, organization charts,and customer and employee surveys and inter-views. The findings are then compared with indus-try standards and historical trends, and judgments

Academy o! Management Executive August

Stage 1;Surveying

Stage 2:Categorizing

Stage 3:Investigating

Stage 4:Evaluating

Generate long-list of strengthsand weaknessesfrom primary andsupport activities

ol the firm'svalue chain

(See Figure 3}

Reconceptualizelong-list in

terms ofresources and

capabilities andcomplete deeper

inspection with theapplication ofkey questions(See Figure 4)

Determine where,along the firm's

value chain,potential

competitiveadvantage lies.

Look at eachcompetitively

relevant resourceand

capability relativeto its potential as a

cost oruniqueness driver

fSee Table 1)

Choose theappropriate

generic strategyfor the firm

cost leadershipor

difierentiation

FIGURE 1Internal Environmental Analysis Process

Ingram Micro is a leading worldwide wholesaledistributor of microcomputer products. Located inSanta Ana, California, Ingram markets microcom-puter hardware, networking equipment, and soft-ware products to more than 100,000 reseller cus-tomers in more than 120 countries. Ingram's morethan 1,100 suppliers include Apple Computer,Cisco Systems, Compaq, Hewlett-Packard, IBM,Intel, Toshiba, and U.S. Robotics. Some of its majorcustomers include CompUSA, Micro Warehouse,Sam's Club, and GE Capital Technologies. It of-fers one-stop shopping through an inventory ofover 36,000 products.

The company began as part of Ingram Indus-tries and has relied throughout its history on

other entities in the Ingram family of businessesfor financing, cash management, tax and pay-roll administration, insurance, and administra-tive services. In 1996, Ingram Micro engaged in apublic offering to raise the capital necessary toaccomplish a split-off, but planned to continueto rely on the larger company for selected ser-vices.

Ingram Micro has grown rapidly since 1991and increased net sales and net income from$2.0 billion and $30.2 million to more than $9.0billion and $85.0 million respectively. Over 30percent of its net sales are generated interna-tionally. In 1994, it formed the Ingram AllianceReseller Company, a master reseller business.

FIGURE 2A Profile of Ingram Micro

are made as to whether the organization's perfor-mance represents strengths or weaknesses rela-tive to others in the strategic group.^

In the case of Ingram Micro, as illustrated inFigure 3, potential strengths included the experi-ence of the management team, administrative andfinancial support from Ingram Industries, andleading-edge information and inventory controlmodels. Potential weaknesses included extremelyhigh debt and financial leveraging, dependencyon a relatively few and powerful suppliers, andpotentially excessive family control.^

Stage Two: Categorizing OrganizationalDiiferencesThe second stage of internal organizational anal-ysis involves more detailed categorization of thestrengths and weaknesses highlighted by the ini-tial survey. The critical task in this stage is tounderstand precisely what types of strengths andweaknesses a firm possesses in an absolute senseand relative to competitors.^ Do the organization'sstrengths and weaknesses lie in tangible or intan-gible resources or both? Are they represented pri-

1998 Duncan, Gintei. and Swayne

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